The Delhi High Court has held that the involvement of the same supplier in proceedings initiated by the Central and State GST department does not, by itself, establish that the proceedings concern the “same subject matter” for the purposes of Section 6(2)(b) of the Central Goods and Services Tax Act, 2017.
A division bench of Justice Anil Kshetrapal and Justice Bharat Parashar dismissed a writ petition challenging a demand of ₹47,93,104 towards allegedly inadmissible input tax credit (ITC), along with applicable interest and penalty, observing that the dispute required examination of the respective notices, tax periods, invoices, transactions and precise liabilities.
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The bench permitted the taxpayer to pursue the statutory appellate remedy and clarified that its dismissal of the writ petition should not be treated as approval of the demand or rejection of the taxpayer’s substantive defences.
The petitioner/assessee a proprietorship engaged in retail and wholesale trading of machines, screws, scaffolding, shuttering and propping equipment.
The Central GST proceedings arose from an investigation initially concerning M/s Pramod Traders/Bheem Traders. According to the adjudication record described in the judgment, the department received a communication dated December 6, 2021, alleging that the entity had issued invoices without corresponding supplies and had failed to comply with statutory return-filing and tax-payment obligations.
The investigation subsequently extended to M/s ASA Nand Nathu Ram, which was alleged to have availed ITC of ₹7,48,600 from that entity. Its business premises were inspected on January 18, 2022.
Although the premises were found operational, the adjudication order recorded that the proprietor’s statement and WhatsApp conversations indicated transactions involving invoices without actual goods. The department further alleged that twelve suppliers verified during the investigation were bogus or non-existent.
According to the department’s case, M/s ASA Nand Nathu Ram had availed fake ITC of approximately ₹11.96 crore and passed on inadmissible credit of approximately ₹12.09 crore to 618 beneficiary entities through invoices without actual supplies.
The assessee was identified as one of the alleged beneficiaries. The show cause notice recorded an ITC liability of ₹47,93,104 against it. The record also reflected a deposit of ₹5 lakh through Form DRC-03 dated October 20, 2022.
The Central authorities issued a demand-cum-show cause notice dated June 6, 2024, whose summary was uploaded on the GST portal on August 2, 2024.
The notice alleged that recipient entities, including the petitioner, had availed and utilised ITC without receiving the corresponding goods or services. It proposed recovery of the credit, interest under Section 50 and penalty under Section 74.
The proceedings culminated in an Order-in-Original dated February 12, 2025, confirming the demand against the recipient entities, including the petitioner. Amounts already deposited were directed to be appropriated against their respective liabilities.
The taxpayer challenged both the notice and the adjudication order before the High Court.
The petitioner’s principal objection was that State GST authorities had already initiated proceedings concerning ITC availed. It argued that the subsequent Central proceedings were therefore barred by Section 6(2)(b).
For financial year 2017-18, the State authorities issued a notice dated September 23, 2023. According to the petitioner, the demand was subsequently dropped by an order dated December 13, 2023.
For financial year 2018-19, a notice dated December 20, 2023, concerned credit from three suppliers. The allegations relating to two suppliers were dropped, while the demand concerning M/s ASA Nand Nathu Ram was confirmed on April 29, 2024. The petitioner stated that its challenge to that order was pending before the High Court.
For financial year 2019-20, the State authorities issued a notice dated May 29, 2024. According to the petitioner, the demand concerning M/s ASA Nand Nathu Ram was confirmed on August 29, 2024, while allegations relating to other suppliers were dropped.
The petitioner also referred to State proceedings for financial year 2020-21, initiated through a notice dated November 22, 2024, and culminating in an order dated February 27, 2025.
The High Court explained that Section 6(2)(b) does not prohibit every subsequent proceeding merely because another GST authority has previously proceeded against the same taxpayer.
The relevant question is whether both proceedings seek to determine the same subject matter. This requires examination of the tax periods, particular transactions and invoices, precise ITC amounts, allegations in the notices and liabilities sought to be determined.
The bench referred to the Supreme Court’s decision in M/s Armour Security (India) Ltd. v. Commissioner, CGST Delhi East Commissionerate, reported as 2025 INSC 982, concerning the scope of Section 6(2)(b), formal initiation of proceedings through a show cause notice and identification of the particular tax liability or obligation involved.
Applying that approach, the Court found that reference to a common supplier did not establish that the entire Central proceeding was barred.
The earlier State proceedings remained relevant. However, their effect could not be determined without comparing their precise scope with the Central notice and underlying transaction-wise material.
The State proceedings had been initiated under Section 73, whereas the Central proceedings invoked Section 74 on allegations of fraud, wilful misstatement or suppression of facts.
The Court clarified that this difference was not, by itself, conclusive in deciding whether the proceedings concerned the same subject matter. It was nevertheless a relevant circumstance when examining the nature of the liability each authority sought to determine.
Consequently, the question of overlap required a detailed factual examination that the statutory appellate authority could undertake on the complete record.
The bench separately examined the chronology for financial year 2020-21.
The State notice for that year was issued on November 22, 2024, after the Central show cause notice dated June 6, 2024. The Court observed that the subsequent initiation of State proceedings could not invalidate the earlier Central initiation.
Similarly, the State order dated February 27, 2025, was passed after the Central adjudication order dated February 12, 2025. Such subsequent adjudication could not retrospectively render the Central proceedings without jurisdiction.
The petitioner argued that the show cause notice alleged non-receipt of goods under Section 16(2)(b), while the adjudication order proceeded on non-payment of tax by the supplier under Section 16(2)(c).
The Court found that the order did not rest exclusively on the supplier’s alleged non-payment of tax. It expressly recorded an independent finding under Section 16(2)(b) that the recipient entities had not physically received goods and had instead received invoices without supplies.
The allegation that the entire demand had been confirmed on a wholly new and unrelated factual basis was therefore not established on the face of the record.
However, whether those findings were factually and legally sustainable, and whether the evidence justified invocation of Section 74, remained matters for the appellate forum.
The taxpayer also alleged that it had not received an effective opportunity of personal hearing and that its request for additional time had not been properly considered.
The Court noted that Section 75(4) contemplates a hearing where a written request is received or an adverse decision is contemplated. The adjudication order contained a record of personal hearing and stated that opportunities had been granted to the noticees.
The bench noticed an apparent chronological inconsistency: one hearing date was recorded as December 23, 2025, even though the order was dated February 12, 2025.
It held that this discrepancy alone did not establish that no hearing opportunity had been granted. Verification required examination of the hearing notices, service records, actual dates and the taxpayer’s responses.
The petitioner remained entitled to demonstrate before the appellate authority that the opportunity was ineffective or that its hearing request had not been properly addressed.
The petitioner challenged the inclusion of different financial years in a single proceeding and its consequences for limitation.
The Court observed that proceedings concerning more than one financial year are not void merely for that reason. The relevant questions include whether the demand for each period is separately identifiable, whether the applicable limitation requirements are satisfied and whether the conditions for invoking Section 74 are fulfilled.
These issues, along with the evidentiary value of investigation statements, the request for cross-examination and consideration of the taxpayer’s replies, were left for examination through the statutory remedy.
The High Court concluded that the petitioner had not established circumstances warranting interference under Article 226 despite the available statutory appellate remedy.
Determining the correctness of the ₹47.93 lakh demand would require scrutiny of disputed questions concerning actual receipt of goods, ITC eligibility, investigation evidence, Section 74, interest and penalty. The Court declined to undertake that appellate examination in writ proceedings.
It expressly clarified that it had not decided whether any particular financial year or transaction in the Central proceedings was barred by Section 6(2)(b). It also expressed no final opinion on ITC admissibility, receipt of goods, limitation, interest or penalty.
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